UPDATE: Oppenheimer Downgrades Legacy Reserves (LGCY) to Underperform

Oppenheimer downgraded Legacy Reserves (NASDAQ: LGCY) from Perform to Underperform. At current oil prices, analyst Bernard Colson thinks another distribution cut is likely in 2016.

"The recent double-dip in crude prices crushes LGCY's cash-generating ability. As a result, if oil prices don't recover, we believe LGCY will be slashing the distribution again in 1Q16 (we currently model a 71% cut). In addition, this leaves the question of financial leverage unresolved. We estimate debt/EBITDA of approximately 8x in 2016 (at current oil prices), and equity financing options are limited as a result of recent precipitous declines in the common units," said Colson.

"If oil prices don't rebound from here, LGCY units are worth far less than the current price, in our view. We prefer to invest in midstream MLPs," continued the analyst.

Colson added, "At current oil prices, LGCY falls far short of covering its current distribution in 2016. We model another 71% distribution cut in 1Q16. If this occurs, we believe the 2016 annual run-rate of $0.40 means LGCY is worth far less than where it currently trades."

For an analyst ratings summary and ratings history on Legacy Reserves click here. For more ratings news on Legacy Reserves click here.

Shares of Legacy Reserves closed at $8.01 yesterday.

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